Following the US Labor Day holiday, the bond market is bracing for heightened volatility. Analysts are anticipating a rush of corporate and government bond supply, alongside the first application of an expanded Treasury buyback program. This combination is leading to predictions of significant market swings across both short and long maturities.
Bank of America initially projected US investment-grade corporate bond issuance to reach $190 billion in September, which would be the second-largest September on record. However, this figure was revised down from an earlier forecast of $200 billion to $250 billion, partly due to a record $164 billion issued in August. An informal Bloomberg survey of dealers, however, indicates a potential $215 billion in investment-grade corporate bonds for September, which could surpass last year's record of $207.5 billion. Some Wall Street estimates even project issuance reaching $250 billion, driven by AI companies seeking funds.
The Treasury Department is set to auction $39 billion of 10-year notes and $22 billion of 30-year bonds. Concurrently, the long-dated Treasury buyback operations will increase to $4 billion per operation from $2 billion. This heavy supply, coupled with investor unease from recent turmoil in global bond markets, could divert demand from Treasuries and exert upward pressure on yields. Thomas Kikis, head of US markets at Standard Chartered, warned that turbulence is expected from Labor Day through Christmas.
